SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- - ------------------------------------------------------------------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File No. 1-14166
MERIDIAN INDUSTRIAL TRUST, INC.
- - ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 94-3224765
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
455 Market Street
17th Floor
San Francisco, California 94105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 281-3900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $0.001 per share New York Stock Exchange
Warrants to Purchase Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of the common and
preferred stock, as of the latest practicable date:
Shares of Series B Preferred Stock as of May 1, 1996 : 2,272,727
Shares of Common Stock as of May 1, 1996 : 9,687,281
<PAGE>
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PART I: FINANCIAL INFORMATION
- - ------------------------------------------------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements should be
read in conjunction with the 1995 Form 10-K of the registrant (the "Company").
These consolidated statements have been prepared in accordance with the
instructions of the Securities and Exchange Commission Form 10-Q and do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of the Company's management, all material adjustments of a
normal, recurring nature considered necessary for a fair presentation of results
of operations for the interim period have been included. The results of
consolidated operations for the three month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED BALANCE SHEETS
As of March 31, 1996 and December 31, 1995
(unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
INVESTMENT IN REAL ESTATE:
Rental Properties $ 235,498 $ 300
Less: Accumulated Depreciation (494) --
--------- --------
235,004 300
Rental Property Held for Sale, Net of Accumulated
Depreciation of $9 at March 31, 1996 3,891 --
--------- --------
238,895 300
OTHER ASSETS:
Cash and Cash Equivalents 7,208 475
Restricted Cash 5,551 --
Cash Held in Escrow 1,905 --
Investment in Marketable Security -- 2,607
Receivables, Net of Reserves of $678 at
March 31, 1996 1,690 --
Notes Receivable from Affiliate 720 --
Capitalized Loan Fees, Net 1,474 254
Capitalized Lease Commissions 279 --
Personal Property, Net 181 20
Other Assets 1,226 68
-------- --------
TOTAL ASSETS $ 259,129 $ 3,724
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Mortgage Loan $ 66,094 $ --
Unsecured Credit Facility 31,900 --
Mortgage Note Payable 1,456 --
Notes Payable to Affiliates -- 750
Accrued Dividends Payable 1,278 29
Accounts Payable 3,085 10
Due to Affiliate 87 232
Short-Term Loan Payable -- 2,351
Prepaid Rent, Tenant Deposits and
Other Liabilities 3,538 66
-------- --------
TOTAL LIABILITIES 107,438 3,438
-------- --------
REDEEMABLE SERIES A PREFERRED STOCK--Par value
$0.001; fully redeemed at March 31, 1996;
1,000,000 shares issued and outstanding at
December 31, 1995 -- 1,000
-------- --------
STOCKHOLDERS' EQUITY:
Authorized Shares -- 175,000,000 shares of
Common Stock and 25,000,000 shares of Preferred
Stock authorized, each with par value of $0.001;
8,187,281 and 900 shares of Common Stock issued
and outstanding at March 31, 1996 and
December 31, 1995, respectively; and 2,272,727
shares of Series B Preferred Stock issued and
outstanding at March 31, 1996 10 1
Paid-in Capital 153,697 607
Distributions in Excess of Income (2,016) (1,322)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 151,691 (714)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 259,129 $ 3,724
======== ========
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Month Period Ended March 31, 1996
(unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
<S> <C>
REVENUES:
Rentals from Real Estate Investments $ 3,468
Interest and Other Income 156
TOTAL REVENUES ---------
3,624
EXPENSES:
Interest Expense 858
Property Taxes 549
Property Operating Costs 170
General and Administrative (including Amount
Payable to Related Party of $16) 605
Depreciation and Amortization 506
---------
TOTAL EXPENSES 2,688
---------
Income Before Extraordinary Item 936
Extraordinary Item - Expenses Incurred in
Connection with Debt Retirements (375)
NET INCOME $ 561
=========
Net Income $ 561
Less: Preferred Dividends Declared (296)
---------
NET INCOME ALLOCABLE TO COMMON $ 265
=========
NET INCOME PER WEIGHTED AVERAGE COMMON SHARE
OUTSTANDING $ 0.08
=========
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Month Period Ended March 31, 1996
(unaudited, in thousands)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to reconcile net income to cash $ 561
used in operating activities:
Depreciation 506
Amortization 48
Rent Adjustment (78)
Extraordinary Item - Expenses Incurred in
Connection with Debt Retirements 375
Increase in Cash Held In Escrow (5)
Increase in Capitalized Lease Commissions (279)
Decrease in Accounts Receivable 449
Increase in Accounts Payable 243
Decrease in Due to Affiliates (426)
Increase in Other Assets (348)
Decrease in Prepaid Rent and Other Liabilities (1,441)
---------
Net Cash Used in Operating Activities (395)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Unrestricted Funds of Merged Trusts 11,892
Net Cash Disbursement in Connection with Asset
Purchase (3,257)
Redemption of Series A Preferred Stock and Accrued
Dividends Payable (83)
Property Acquisition, Net (9,227)
Improvements to Real Estate (39)
Maturity of Short-Term Investment 2,607
Purchase of Personal Property (185)
---------
Net Cash Used in Investing Activities 1,708
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Capitalized Loan Fees (380)
Retirement of Notes Payable to Affiliates (750)
Debt Retirements (57,953)
Payoff of Short-Term Loan Payable (2,351)
Drawdowns on Unsecured Credit Facility 31,900
Proceeds from the Issuance of Common and
Preferred Stock, Net 34,954
---------
Net Cash Provided by Financing Activities 5,420
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,733
Cash and Cash Equivalents- Beginning of Period 475
---------
CASH AND CASH EQUIVALENTS- END OF PERIOD $ 7,208
=========
Cash paid for interest during three months ended
March 31, 1996 $ 196
=========
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Month Period Ended March 31, 1996
(unaudited, in thousands)
<TABLE>
<CAPTION>
<S> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTION:
Merger Transaction:
Acquisition Cost Allocated to Investment in
Real Estate $ 203,489
Restricted Cash 5,551
Receivables, Net 2,889
Note Receivable from Affiliate 720
Capitalized Loan Fees 992
Cancellation of Redeemable Series A Preferred 960
Stock
Mortgage Loan Assumed (66,094)
Other Long-Term Debts Assumed (43,191)
Accounts Payable Assumed (2,869)
Shares of Common Stock Issued, at Par Value (8)
Paid-in Capital (109,842)
Other Net Liabilities Assumed (4,489)
Asset Purchase Transaction:
Acquisition Cost Allocated to Investment in
Real Estate 26,342
Restricted Cash Applied to Debt Pay Down 117
Mortgage Notes Payable Assumed (16,334)
Paid-in Capital of Common Shares Issued (6,392)
Accrued Closing Costs and Pro-rated Items (476)
Transactions Related to Property Acquisition:
Deposit Applied to Property Acquisition Costs 300
Accrued Closing Costs and Pro-rated Items (47)
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 1996
(unaudited, in thousands, except share data)
1. ORGANIZATION.
Meridian Industrial Trust, Inc. ("the Company") was incorporated in the
state of Maryland on May 18, 1995. The Company is engaged primarily in the
business of owning, acquiring, managing, leasing and developing income producing
warehouse/distribution and light industrial properties.
On February 23, 1996, the Company merged with Meridian Point Realty Trust
IV Co., Meridian Point Realty Trust VI Co. and Meridian Point Realty Trust VII
Co. ("Trust IV", "Trust VI" and "Trust VII", respectively; collectively referred
to as the "Merged Trusts"), with the Company as the surviving entity (the
"Merger"). In addition, concurrent with the Merger, the Company acquired certain
properties, and assumed certain mortgage notes and other liabilities (the "Asset
Purchase"), from Meridian Point Realty Trust `83 ("Trust 83").
Concurrent with the closing of the Merger and Asset Purchase, the Company
closed a private placement of preferred stock (the "Preferred Stock Private
Placement") and entered into an unsecured credit facility (the "Unsecured Credit
Facility") (see Note 6). The Preferred Stock Private Placement consisted of the
issuance of 2,272,727 shares of Series B convertible preferred stock, par value
$0.001 per share ("Series B Preferred Stock"), at $15.40 per share for gross
proceeds of $35,000. The Unsecured Credit Facility provides for a maximum
borrowing amount of $75,000 and is intended to provide the Company with funds
for property acquisitions and working capital needs.
Prior to February 23, 1996, the Company had no operating activities other
than interest on its investments and general and administrative expenses.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. CASH AND CASH EQUIVALENTS.
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents.
3. RESTRICTED CASH.
The restricted cash of $5,551 serves as collateral for a letter of credit
issued in favor of the lender of the Mortgage Loan (see Note 6). The Company is
currently negotiating with the lender to obtain a release of the restricted cash
by adding the General Tire Facility (see Note 10) to the Mortgage Loan
collateral. The Company intends to use the released funds to pay down the
Unsecured Credit Facility.
<PAGE>
4. INVESTMENT IN REAL ESTATE.
In accordance with generally accepted accounting principles, the Company
has accounted for the Merger and Asset Purchase using the purchase method (see
Note 12). As such, the assets and liabilities acquired in connection with the
Merger and Asset Purchase are recorded at their "acquisition cost," representing
the fair value of the consideration surrendered and liabilities assumed. The
acquisition cost was then allocated to all identifiable assets based upon their
individual estimated fair market values. The following is a summary of the
acquisition cost recorded in connection with the Merger and Asset Purchase:
<TABLE>
<CAPTION>
<S> <C>
Fair value of the Company's common stock valued at $16.375
per share, based upon the average of the closing price of
the Company's common stock for the first five post-Merger
trading days, issued to the Merged Trusts' shareholders
other than Hunt Realty Acquisitions, L.P., a Delaware
Partnership ("Hunt") and USAA Real Estate Company, a
Delaware corporation ("USAA") $ 72,677
Fair value of the Company's common stock totaling 390,360
shares, valued at $16.375 per share, issued to Trust 83 6,392
Common stock issued to Hunt and USAA valued at the
consideration they paid for their interests in the
Merged Trusts 37,173
Cash consideration paid to Trust 83 in connection with the
Asset Purchase before pro-rated items 3,600
Liabilities of the Merged Trusts and Trust 83 assumed by the
Company upon consummation of the Merger and Asset Purchase 133,453
Closing and other accrued costs incurred in connection with
the Merger and Asset Purchase 204
---------
Acquisition cost basis 253,499
Acquisition cost basis allocated to assets other than
Investment in Real Estate (23,668)
---------
Acquisition cost basis allocated to Investment in Real Estate
as a result of the Merger and Asset Purchase $ 229,831
=========
</TABLE>
Investments in Real Estate are depreciated over 35 years using the
straight-line method. Expenditures for maintenance, repairs and improvements
which do not materially prolong the normal useful life of an asset are charged
to operations as incurred. Tenant improvements are capitalized and amortized
under the straight-line method over the terms of the related lease.
5. RENTAL PROPERTY HELD FOR SALE.
At March 31, 1996, Rental Property Held for Sale included the Moorpark R &
D Building located in Moorpark, California. The Company anticipates closing the
sale of this property in May 1996. The net proceeds from the sale of the
property will be used to pay down the Unsecured Credit Facility.
6. DEBT FACILITIES.
The Company acquired the Mortgage Loan in connection with the Merger. The
Mortgage Loan bears interest at the annual rate of 8.63%, requires interest only
payments until its maturity in 2005 and is secured by a pool of the Company's
properties with a net book value of $134,867 as of March 31, 1996.
Concurrent with the Merger, the Company closed on the Unsecured Credit
Facility. The facility bears interest at LIBOR plus 1.7%, requires interest only
payments until maturity in February 1998, and provides for fees on the unused
facility of 25 basis points to the extent that less than 65% of the facility is
used and 15 basis points to the extent that more than 65% of the facility is
used. The Unsecured Credit Facility provides for a maximum borrowing amount of
$75 million (see Note 11).
At March 31, 1996, the Company had drawn $31,900 on the Unsecured Credit
Facility. The proceeds were used to payoff debt acquired in connection with the
Merger and Asset Purchase, and to fund a portion of the General Tire Facility
acquisition (see Note 10).
7. INCOME TAXES.
The Company intends to make an election to be taxed as a real estate
investment trust ("REIT") for federal income tax purposes for the tax year ended
December 31, 1996. To qualify for REIT status, the Company must meet a number of
ongoing organizational and operational requirements. If the Company satisfies
those REIT requirements, it generally will not be subject to federal income tax
to the extent it currently distributes all of its net taxable income (including
net capital gains) to its stockholders. If the Company fails to qualify as a
REIT in any taxable year, it will be subject to certain state and local taxes
imposed on its income and properties, and to federal income and excise taxes on
its undistributed income. The Company does not intend to seek a ruling from the
Internal Revenue Service regarding its status as a REIT.
8. COMMON AND PREFERRED STOCK.
The initial capitalization of the Company consisted of 900 shares of
common stock, par value $0.001 per share (the "Common Stock"), issued for a
total consideration of $14 (originally $18 of which $4 was subsequently
refunded). In connection with the Merger and Asset Purchase transactions, the
Company issued 7,601,478 and 390,360 shares of Common Stock, respectively. The
Company's Net Income per Weighted Average Common Share Outstanding for the three
months ended March 31, 1996 was computed based on weighted average common shares
outstanding of 3,419,389.
Concurrent with the Merger and Asset Purchase, the Company closed the
Preferred Stock Private Placement. The proceeds from the Preferred Stock Private
Placement were used to retire debt acquired in connection with the Merger and
Asset Purchase in the principal amount of $33,500.
On March 25, 1996, the Company declared dividends to holders of Common and
Series B Preferred Shares in the aggregated amount of $982 and $295,
respectively, or $0.12 and $0.13 per share, respectively, payable on April 19
and April 15, 1996, respectively.
9. STOCK PLAN.
The Board of Directors of the Company has adopted an incentive plan (the
"Stock Plan") to enable the Company to attract, retain and motivate key
employees, directors and, on occasion, consultants and advisors, by providing
them with equity participation in the Company. The Stock Plan provides for the
grant of incentive stock options, non-qualified stock options, unrestricted
stock, restricted stock and stock appreciation rights.
Certain officers of the Company exercised stock options granted in 1995
and purchased 191,400 shares of the Company's Common Stock. In connection with
the grant of these options, the Company agreed to repurchase certain promissory
notes executed by the officers from a third party lender in the event that the
officers default under such notes.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock Based
Compensation" which establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 become effective for the
Company in 1996. This statement encourages a "fair value based method" of
accounting for an employee stock option or similar equity instrument which calls
for compensation cost to be measured at the grant date based on the value of the
award and is recognized over the service period, which is usually the vesting
period. In accordance with the provisions of SFAS No. 123, the Company will
record measurement of compensation for its stock plans using the "intrinsic
value based method" of accounting, with disclosure of the pro forma impact on
net income and earnings per share as if the "fair value based method" of
accounting had been applied. The Company has adopted SFAS No. 123 and believes
that the adoption will not have a material impact upon its financial position
and results of operations.
10. PROPERTY ACQUISITION.
After exercising its option, the Company purchased a 332,790 square foot
facility located in the City of Industry (the "General Tire Facility") on March
29, 1996. The purchase price totaled $9,527 and was financed by applying the
$300 deposit paid in 1995, with the $9,227 balance funded by a draw on the
Unsecured Credit Facility.
The Company is negotiating with the lender of the Mortgage Loan to include
the General Tire Facility in the collateral pool of properties, thus obtaining a
release of the $5,551 in restricted cash. The restricted cash serves as
collateral for a Letter of Credit issued in favor of the lender. The Company
intends to use the released funds to pay down its Unsecured Credit Facility.
11. SUBSEQUENT EVENT.
On April 3, 1996, the Company closed on an offering comprising the
issuance of 1,500,000 shares of the Company's Common Stock at an offering price
of $16.375 per share, resulting in gross proceeds of $24,563 (the "Offering").
The Company used the net proceeds of the Offering and existing cash reserves to
make a $24,000 pay down on its Unsecured Credit Facility. In connection with the
Offering, the Company was able to negotiate an increase of the maximum borrowing
amount under the Unsecured Credit Facility from $50,000 to $75,000.
In May 1996, the Company anticipates entering into an agreement to develop
and lease to an identified tenant a 362,000 square foot build-to-suit warehouse
facility in Grand Prairie, Texas. Once developed, the tenant will lease the
property on a 15-year, triple-net lease. The total cost for the design and
construction of the facility is estimated to be $15.6 million, with a targeted
completion date in December 1996. The Company anticipates funding the total cost
with draws from the Unsecured Credit Facility.
<PAGE>
12. SUPPLEMENTAL INFORMATION.
Pro Forma Operating Information.
As discussed in Note 4, in accordance with generally accepted accounting
principles, the Company accounted for the Merger and Asset Purchase by the
purchase method. As such, the Company is providing the following pro forma and
historical combined operating data as supplemental information.
The pro forma consolidated operating data presented below for the three
month periods ended March 31, 1996 and March 31, 1995 have been prepared to
reflect (i) the completion of the Offering and pay down of the Unsecured Credit
Facility, (ii) the General Tire Facility Acquisition, (iii) the Merger, (iv) the
Asset Purchase, (v) the Private Placement, and (vi) certain other adjustments as
if such transactions had occurred on January 1, 1995.
The pro forma information is unaudited and is not necessarily indicative
of the consolidated results that would have occurred if the transactions and
adjustments reflected therein had been consummated in the period presented, or
an any particular date in the future, nor does it purport to represent the
financial position, results of operations or changes in cash flows for future
periods.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1996 1995
------- -------
<S> <C> <C>
REVENUES:
Rentals from Real Estate Investments $ 9,770 $ 9,891
Interest and Other Income 156 66
------- -------
TOTAL REVENUES 9,926 9,957
EXPENSES:
Interest Expense 1,581 1,537
Property Taxes 1,481 1,479
Property Operating Costs 1,011 1,010
General and Administrative Expenses 1,200 1,200
Depreciation and Amortization 1,092 1,093
------- -------
TOTAL EXPENSES 6,365 6,319
------- -------
NET INCOME BEFORE EXTRAORDINARY ITEM $ 3,561 $ 3,638
======= =======
</TABLE>
<PAGE>
HISTORICAL COMBINED OPERATING INFORMATION
The statement of operations presented below represents the historical and
as adjusted historical combined consolidated operating data of the Merged Trusts
for the three months ended March 31, 1995. The financial data is presented for
informational use and is not intended to be compared, nor is it comparable to
the Company's Consolidated Statement of Operations for the three months ended
March 31, 1996.
This financial information is unaudited and is not necessarily indicative
of the combined consolidated results that would have occurred if the
transactions and adjustments reflected therein had been consummated in the
period presented, or an any particular date in the future, nor does it purport
to represent the financial position, results of operations or changes in cash
flows for future periods.
<TABLE>
<CAPTION>
MERGED TRUSTS
THREE MONTHS ENDED MARCH 31, 1995
-----------------------------------
Historical Adjustment As Adjusted
Combined (1) Historical
-----------------------------------
<S> <C> <C> <C>
REVENUES:
Rentals from Real Estate
Investments $ 8,595 $ (393) $ 8,202
Interest and Other Income 229 -- 229
---------- ---------- ----------
TOTAL REVENUES 8,824 (393) 8,431
---------- ---------- ----------
EXPENSES:
Interest and Amortization of Debt
Premium 2,682 (88) 2,594
Property Taxes 1,330 (24) 1,306
Property Operating Costs 1,211 (78) 1,133
General and Administrative 810 -- 810
Provision for Decrease in Net
Realizable Value 1,140 (1,140) --
Depreciation and Amortization 2,323 (103) 2,220
---------- ---------- ----------
TOTAL EXPENSES 9,496 (1,433) 8,063
---------- ---------- ----------
NET INCOME (LOSS) $ (672) $ 1,040 $ 368
========== ========== ==========
<FN>
(1)The historical combined consolidated results of operations of the Merged
Trusts for the three months ended March 31, 1995 has been adjusted to reflect
the elimination of the operations of Paradise Marketplace property, which was
sold in July 1995. In addition, interest expense was reduced resulting from
the pay down on the related debt using the net proceeds received from the
sale.
</FN>
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
(dollars in thousands unless indicated otherwise)
INTRODUCTION
The Company is a self-administered and self-managed real estate investment
trust engaged primarily in the business of owning, acquiring, managing, leasing
and developing income-producing warehouse/distribution and light industrial
properties. The Company's principal asset is its portfolio of 78 industrial and
seven retail properties.
The following discussion should be read in conjunction with the Company's
Form 10-K for 1995 and in conjunction with the Consolidated Balance Sheets,
Statement of Operations and Cash Flows and the notes thereto included in pages 2
through 11 of this report. Unless otherwise defined in this report, or unless
the context otherwise requires, the capitalized words or phrases used in this
section either (i) describe accounting terms that are used as line items in such
financial statements, or (ii) have the meanings ascribed to them in such
financial statements and the notes thereto.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company intends to finance property acquisitions, expansions and
renovations using a combination of cash flow from operations and bank and
institutional debt financing, supplemented with private or public debt or equity
placements. Where intermediate or long-term debt financing is employed, the
Company will generally seek to obtain fixed interest rates or enter into
agreements intended to cap the effective interest rate on floating rate debt.
Sources of Liquidity
The Company's main sources of liquidity are: (i) cash flows from operating
activities, (ii) cash reserves, (iii) proceeds from the Unsecured Credit
Facility, (iv) proceeds from private or public equity or debt placements, and
(v) proceeds from property dispositions. A summary of the Company's historical
cash flows is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996
------------------
<S> <C>
Cash flows provided by (used in):
Operating activities $ (395)
Investing activities $ 1,708
Financing activities $ 5,420
</TABLE>
<PAGE>
In addition to cash flows and net income, management and industry analysts
generally consider Funds From Operations to be one additional measure of the
performance of an equity REIT because, together with net income and cash flows,
Funds From Operations provides investors with an additional basis to evaluate
the ability of the Company to incur and service debt and to fund acquisitions
and other capital expenditures. However, Funds From Operations does not measure
whether cash flow is sufficient to fund all of the Company's cash needs
including principal amortization, capital improvements, and distributions to
shareholders. Funds From Operations also does not represent cash generated from
operating, investing or financing activities as determined in accordance with
generally accepted accounting principles. Funds From Operations should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a measure of
liquidity. Funds From Operations represents net income before extraordinary
items, adjusted for depreciation on real property and amortization of tenant
improvement costs and lease commissions, and gains from the sale of property (if
any). A reconciliation of the Company's net income before extraordinary item to
Funds From Operations for the three months ended March 31, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Income Before Extraordinary Item $ 936
Reconciling Item:
Depreciation and Amortization
relating to real estate operations 503
--------
Funds From Operations $ 1,439
========
</TABLE>
As of March 31, 1996, the Company had $7,208 in unrestricted cash and cash
equivalents.
The Company used the proceeds from the Preferred Stock Private Placement
to pay off a portion of the total debt acquired in connection with the Merger
and Asset Purchase. Subsequent to the Merger, the Company drew on the Unsecured
Credit Facility and used the proceeds to retire all other debt assumed upon the
Merger and Asset Purchase, except for the $66,094 outstanding on the Mortgage
Loan and one individual property Mortgage Note Payable with an outstanding
principal balance of $1,456 at March 31, 1996. The Mortgage Loan bears interest
at the annual rate of 8.63% and requires interest only payments until its
maturity in 2005.
The Unsecured Credit Facility provides for a maximum borrowing amount of
$75 million, bears interest at LIBOR plus 1.7%, requires interest only payments
until maturity in February 1998, and provides for fees on the unused facility of
25 basis points to the extent that less than 65% of the facility is used and 15
basis points to the extent that more than 65% of the facility is used. At March
31, 1996, the Company had $31,900 outstanding on the Unsecured Credit Facility
of which $24,000 was paid down in April 1996 using proceeds from the Offering
and cash reserves.
In addition, the Company may incur indebtedness in the future that also
bears interest at a variable rate or may be required to refinance its debt at
higher rates. Increases in interest rates could increase the Company's interest
expense, which could adversely affect the Company's ability to pay expected
distributions to stockholders.
On May 11, 1993, Trust IV entered into an interest rate cap agreement
which caps the one month LIBOR at 4.50%. The interest rate cap agreement is
based upon a notional amount of $11,170 for the period from January 1, 1996
through its expiration on June 28, 1996. The agreement provided for payments to
Trust IV to the extent that the one month LIBOR exceeds 4.5%. The agreement was
transferred to the Company upon completion of the Merger.
<PAGE>
On April 3, 1996, the Company issued 1,500,000 shares of the Company's
Common Stock to investors for $16.375 per share, resulting in gross proceeds of
$24,563 (the "Offering"). The net proceeds from the Offering, together with cash
reserves, were used to pay down $24,000 on the Unsecured Credit Facility. In
connection with the Offering, the Company was able to negotiate an increase of
the maximum borrowing amount under the Unsecured Credit Facility from $50,000 to
$75,000.
In connection with the Merger, the Company issued to holders of Trust VI
and Trust VII common stock approximately 553,000 Merger Warrants to purchase an
equal number of shares of the Company's common stock. The Merger Warrants were
issued on April 8, 1996 and will be exercisable during the period May 23, 1997
through February 24, 1999. The exercise price of the Warrants ($16.23 per share)
equals the average of the closing prices of the Company's Common Stock as quoted
on the New York Stock Exchange during the first twenty trading days after the
Merger.
In May 1995, the Company anticipates closing the sell of the Moorpark R &
D Building located in Moorpark, California. The net proceeds from the sale of
the property will be utilized to pay down the Unsecured Credit Facility.
USES OF LIQUIDITY
The Company's principal applications of its cash resources are: (i)
operating costs including property expenses, property taxes, general and
administrative expenses, interest expense, and legal costs, (ii) capital
improvements and leasing costs, (iii) payment of distributions, (iv) principal
paydowns on its debt, and (v) property acquisitions.
During 1996, the Company anticipates that it will have sufficient Funds
From Operations to fund: (i) its operating needs, (ii) capital improvements on
the properties, and (iii) the proposed distributions to its common and preferred
stockholders. Planned capital improvements on the Company's properties consists
of tenant improvements and other expenditures necessary to lease and maintain
the properties.
During the three months ended March 31, 1996, the Company declared
dividends to holders of Common Stock and Series B Preferred Stock in the
aggregated amount of $982 and $295, respectively, or $0.12 and $0.13 per share,
respectively, payable on April 19 and April 15, 1996, respectively. The Common
Stock dividends represent a pro-rated quarterly rate of $0.29 per share to
holders of the Company's Common Stock, which on annualized basis is equivalent
to an annual distribution of $1.16 per share of Common Stock. The Series B
Preferred Stock dividends represents a pro-rated quarterly rate of $0.31 per
share, or an annualized dividend rate of $1.24 per share of Series B Preferred
Stock. The Company's initial distribution level is based on a number of
assumptions relating to future operations of the Company.
On March 29, 1996, the Company exercised its purchase option and acquired
a 332,790 square foot, single-tenant warehouse/distribution facility located in
the City of Industry, California. The purchase price totaled $9,527 and was
financed by applying the $300 deposit paid in 1995, with the $9,227 balance
funded by a draw on the Unsecured Credit Facility The current tenant occupying
the property is under a triple net lease running through March 2001.
<PAGE>
OTHER REAL ESTATE ACTIVITY
On March 6, 1996, the Company entered into an agreement with a current
tenant to develop and lease to that tenant a 367,744 square foot build-to-suit
warehouse facility in Lewisville, Texas. The tenant has agreed to a 15-year
lease of this facility once developed. The Company has under contract an
approximate 20.3 acre industrial site where the facility will be constructed.
The total cost for the design and construction of the facility is estimated to
be $10.2 million. Construction commenced on April 22, 1996 with a targeted
completion date of December 31, 1996.
In May 1996, the Company anticipates entering into an agreement to develop
and lease to an identified tenant a 362,000 square foot build-to-suit warehouse
facility in Grand Prairie, Texas. Once developed, the tenant will lease the
property on a 15-year, triple-net lease. The total cost for the design and
construction of the facility is estimated to be $15.6 million, with a targeted
completion date in December 1996. The Company anticipates funding the total cost
with draws from the Unsecured Credit Facility.
Two of the Company's properties have experienced groundwater contamination.
An environmental consultant has reported that the sources of the contamination
appear to be adjoining parcels. Two responsible parties have acknowledged, one
in writing and one orally, that they must fund remediation costs. Management has
reviewed the financial condition of the responsible parties (one a Fortune 500
company and the other a municipality located in the San Francisco Bay Area) and
believes that both parties have the ability to fund the costs of remediation.
Accordingly, the Company has not accrued any liability related to these two
properties.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
The Company was incorporated on May 18, 1995. The Merger and Asset
Purchase were consummated on February 23, 1996. The Company's historical results
of operations for the three months ended March 31, 1996 reflect the operating
activities resulting from the Merger and Asset Purchase from February 23, 1996.
Prior to the Merger and Asset Purchase, the Company had no operating activities
other than interest on its investment and administrative expenses. Accordingly,
comparison of such historical results to either the pro forma or as adjusted
historical results from the prior year would not be meaningful.
Comparison of Pro Forma Operating Information for the Three Month
Periods Ended
March 31, 1996 and March 31, 1995
The Company's pro forma Rentals from Real Estate Investments for the three
months ended March 31, 1996 and 1995 totaled $9,770 and $9,891, respectively.
The decrease of $121 or 1.2% during 1996, compared to 1995, was primarily due to
the vacancy at the Company's Lombard property.
Compared to 1995, pro forma Interest and Other Income for the three months
ended March 31, 1996 increased by $90 or 57.4%. The increase was primarily due
to higher average cash balances available for investment.
<PAGE>
RISKS AND UNCERTAINTIES ASSOCIATED WITH FORWARD LOOKING STATEMENTS
This document contains forward looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward looking statements. Factors that may cause such
difference include, but are not limited to, the risks described under the
captions (i) "Management's Discussions and Analysis of Financial Condition and
Results of Operations - Discussion of Known Trends, Events and Uncertainties" in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995
and (ii) "Risk Factors" in Amendment No. 1 to the Company's Registration
Statement on Form S-11 (Registration No.
333-02333).
<PAGE>
- - ------------------------------------------------------------------------
PART II: OTHER INFORMATION
- - ------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings which the Company or any
partnership in which the Company has an interest is a party or to which
any of the assets of the Company or any such partnership is subject.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At a meeting held on January 6, 1996, the Company's shareholders
unanimously approved (a) certain amendments to the Company's stock plan and (b)
certain amendments to Article 5 of the Company's Charter.
ITEM 5. OTHER INFORMATION.
None.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: None.
(b) Reports on Form 8-K. The following Form 8-K reports
were filed during the quarter ended March 31, 1996:
Current Report on Form 8-K and related Form 8-K/A Amendment
No. 1, both dated February 23, 1996. These reports reported
the merger of three other real estate investment trusts into
the Company, the Company's acquisition of assets from a fourth
real estate investment trust, the private placement of Company
preferred stock, and the establishment of an unsecured credit
facility. These reports included the following financial
statements: (i) for the Company: Report of Independent Public
Accountant, Balance Sheet as of December 31, 1995, Statement
of Operations for the period from May 18, 1995 (Inception) to
December 31, 1995, Statement of Stockholders' Deficit for the
period from May 18, 1995 (Inception) to December 31, 1995,
Statement of Cash Flows for the period from May 18, 1995
(Inception) to December 31, 1995, and Notes to Financial
Statements, (ii) for the three real estate investment trusts
merged into the Company: Report of Independent Accountants,
Historical Combined Balance Sheets as of December 31, 1995 and
1994, Historical Combined Statements of Operations for the
years ended December 31, 1995, 1994, and 1993, Historical
Combined Statements of Stockholders' Equity for the years
ended December 31, 1995, 1994, and 1993, Historical Combined
Statements of Cash Flows for the years ended December 31,
1995, 1994, and 1993, Notes to Historical Combined Financial
Statements, Schedule II - Historical Combined and Qualifying
Accounts, and Schedule III - Historical Combined Real Estate
and Accumulated Depreciation, and (iii) for the assets
acquired from the fourth real estate investment trust: Report
of Independent Public Accounts, Combined Statements of Revenue
and Certain Expenses for the years ended December 31, 1995,
1994, and 1993, and Notes to Combined Statements of Revenues
and Certain Expenses. These reports also included the
following pro forma financial information for the Company:
Background, Pro Forma Consolidated Balance Sheet as of
December 31, 1995, Notes to Pro Forma Consolidated Balance
Sheet, Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1995, and Notes to Pro Forma
Consolidated Statement of Operations.
Current Report of Form 8-K dated March 13, 1996 reporting the
Company's filing of a registration statement with the
Securities and Exchange Commission.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MERIDIAN INDUSTRIAL TRUST, INC.
Dated: May 15, 1996 By: Allen J. Anderson
-------------------
Allen J. Anderson
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: May 15, 1996 By: Milton K. Reeder
-------------------
Milton K. Reeder
President and Chief Financial Officer
(Principal Financial Officer)
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